As interest rates decline, investors are faced with the challenge of navigating a changing fixed income landscape. With the desire for higher yields, the pressing question is: where can these be found? Jason Greenblath, Vice President, Senior Portfolio Manager, and Director of Corporate Credit Research at American Century Investments, recently shared insights on the potential of corporate bonds and the advantages of an active fixed income strategy.
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Since joining American Century in 2019, Greenblath has co-led the Corporate Markets team and is a key member of the Global Fixed Income Investment Committee. Despite spreads being at generational lows, he emphasizes that an active fixed income approach can still uncover significant opportunities.
“When you look under the surface, there’s still a lot of idea generation that can occur,” Greenblath noted.
“Consider the investment-grade universe, which consists of 8,000 bonds from nearly 800 borrowers. It’s not as straightforward as the S&P 500, where you can select from just 500 companies,” he explained. “With almost 800 companies and ten times as many bonds, the opportunities are vast.”
Getting Yield in 2025
Greenblath highlighted that within this extensive list of bonds, certain themes can be particularly promising. For instance, he and his team are focusing on short-maturity, BB-rated high-yield bonds. By taking positions in outstanding bond issues, they collaborate with both borrowers and underwriters to refinance existing debt.
“Our approach is very targeted. We ensure a solid understanding of the fundamentals and capitalize on smaller outstanding bonds,” he stated. “The yields on these double Bs, especially when considering shorter maturities, can reach mid-single digits, often exceeding six percent—much more attractive than the index yield of four and three-quarters percent.”
“In our portfolio, particularly with KORP, we maintain a focused approach with only 200 to 300 line items, compared to the index’s 8,000. This concentration allows us to hone in on our ideas and themes,” he added.
Corporate Bond Investing in KORP
Greenblath refers to the American Century Diversified Corporate Bond ETF (KORP), which charges a 29 basis point fee for its services. This ETF actively invests in corporate bonds, aiming to provide both yield and income.
“Investors are seeking total returns alongside income. We achieve this by focusing on newer vintage bonds that were not issued during the pandemic when rates were at historic lows,” Greenblath explained. “Now, we’re seeing coupons issued at 5%, 6%, or even 7%, which are very appealing and provide substantial income without straying too far along the maturity curve.”
To differentiate KORP, Greenblath emphasized the ETF’s ability to adapt to market conditions and conduct thorough scrutiny of potential investments. This strategy encompasses not only established names but also emerging opportunities.
“We may invest in top borrowers like AT&T (T), Verizon (VZ), and JP Morgan (JPM), but only when specific events suggest that spreads will tighten or when companies are likely to tender bonds at a premium,” he noted. “We’ve seen numerous instances of this throughout the year, and I believe this trend will continue.”
“The appeal of KORP lies in its ability to capitalize on these themes, while the index merely captures the market’s beta,” he added.
Looking Ahead
Regarding the role of an ETF like KORP in investment portfolios, Greenblath suggested that it could serve as a core component. While the Bloomberg Aggregate Bond Index, or the Agg, offers some corporate exposure, it primarily consists of U.S. Treasuries and other government debt. KORP’s active focus on corporate bonds provides a similar interest rate risk but with a more concentrated approach.
As we look to the future, an active corporate bond ETF like KORP may be an appealing option for those seeking additional yield as uncertainties loom at the end of 2025.
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